“We don’t need these brutal solutions”
The coronavirus pandemic and the accompanying financial crisis put special pressure on the finances of student loan borrowers and on Congress to do something against a “broken“system.
Democrats recently proposed massive debt cancellation ranging from $ 10,000 To $ 30,000 to help borrowers, while most Republicans and some experts argue that a comprehensive student loan cancellation plan is not the right approach.
About 44 million borrowers across the country hold more than $ 1.6 trillion in student loan debt.
“Most of it is actually pretty good debt,” American Enterprise Institute’s Jason Delisle told Yahoo Finance’s YFi PM (video above). “People can afford to pay, they pay… about 40-50% of outstanding debt… paid for graduate degrees.
A center for American progress january study stated that graduate programs enroll only 15% of all higher education students, compared to 40% of federal student loans granted each year. Between 2010-11 and 2017-18, according to the study, graduate student loans increased 7%, while undergraduate student loans fell 21%.
So, “if you give a blanket loan forgiveness,” Delisle added, “you’re going to forgive loans to people who are part of the educational elite in this country. We’re on the right track with programs in place… we don’t need these brutal solutions like paying off all debts.
The “educational elite” is not immune to historic job losses
2020 may have changed the dynamics a bit.
Student loan borrowers with master’s and doctoral degrees – the so-called “educational elite” – are not exactly immune from unemployment amid the worst job losses since the Great Depression.
Data from the Federal Reserve Bank of St. Louis shows that while the unemployment rate for people over 25 without a high school diploma was highest at almost 21%, 6.7% of master’s graduates and 3.2% of doctorate graduates were unemployed in April 2020.
Underemployment is another separate problem. Data Experiential on the unemployment rate suggests that when the underemployment rate increased in April from 8.7% to 22.8%, more workers moved into part-time roles. The data do not disaggregate the underemployment rate for master’s and doctoral graduates.
It should also be noted that there are strong racial disparities within this group of “educational elites”. Black or African American graduate students hold the largest amount of federal student loan debt, with the total median number standing at $ 76,750. In contrast, the median total federal debt of white graduates is about $ 44,694.
Cancel student debt, so what?
Delisle argued that despite the system malfunction, such as the error of a major student loan manager who reaches 5 million credit reports of student loan borrowers – overhauling the entire system is not the best way forward.
And for people who will find it difficult to make payments after congressional-mandated protections that suspend interest payments are lifted, he added, they can use income-based repayment plans so that ” if you need more time to get back on your feet and navigate this soft job market, those benefits are there.
Aarthi is a reporter for Yahoo Finance covering student debt and higher education.